Apr 10

What’s Going on With Gold Recently?

Posted by Kristjan Velbri | Posted in Gold, Silver | Posted on 10-04-2010

There’s been a lot of misinformation spread about gold via the internet in the recent two weeks. Eric King of King World News seems to have stepped way over the line by presenting very dubious, and I would say, blatantly misleading information about the recent CFTC hearings. I have great respect for Mr. King for his efforts in trying to bring on guests that think clearly and don’t give you the bull that you can read in and see in mainstream financial media, but I can’t agree with everything that he and his guests say. Up to this point the amount of biased information coming from guests on his shows has been somewhat limited to a few outliers, but the last two weeks have been all about gold bugs (the paranoid folk who hate the recovery, love inflation and don’t want anything to do with real facts as they relate to financial markets).

I think that Mr. King puts too much trust into his gold bug guests, especially the ones from GATA. In fact I think they’ve got some kind of agenda on their own – they’ve been on this for years and they don’t seem to be running out of money. No sensible person would devote his life and career to fighting the gold market unless there was something in it for him or the people who are funding this. The only possible explanation for GATA’s involvement is their own financial gain, but I don’t understand the gold bugs with accounts in the mere thousands, there’s way too little for them in it if they somehow would be able to drive the price up a couple hundred bucks by tweeting and linking they gold bug nonsense. It seems that people are willing to lose every bit of skepticism they have for just a few hundred bucks (tech bubble/subprime bubble ring a bell?).

Here are the original interviews that are the basis of recent rumors, in the order of publication (don’t forget your inner skeptic behind when listening to these):
King World News interview with Andrew Maguire & Adrian Douglas
King World News interview with Gold Anti-Trust Action Committee (GATA)
King World News interview with Harvey Organ, Lenny Organ, Adrian Douglas

And here is an alternative, non gold bug view of the matter from two professionals:
Financial Sense Newshour 1st hour interview with Jeff Christian and Nick Barisheff, the show begins with the usual introduction (after all, it’s a weekly podcast), the interviews with gold experts start off at the 26th minute.

It may offer comfort to think that GATA is right when you are holding a long position in gold or gold related assets but at the end of the day, you have to keep a clear, skeptical mind. Don’t trust everything just because it supports your position. The gold bug bandwagon effect may turn out to have a net positive effect on your portfolio, but believing every conspiracy story out there will most likely have a negative effect on your portfolio in the long run. Banks and fund managers don’t make money by relying on David Icke or Dan Brown for the latest market insight, they make money by making rational decision based on trustworthy information gleaned from trustworthy, verifiable sources.

Disclosure: Long SVM, SLW. Long physical gold and silver based on fundamentals (I do not hold positions based on alleged manipulation stories, nor should any other prudent investor).

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Dec 23

Gold Stocks and Ratios

Posted by Kristjan Velbri | Posted in Gold | Posted on 23-12-2009

HUI-gold ratioRatios, the price relationships between two prices, are extremely useful in determining relative weakness and strength in the markets. One such ratio is the HUI to gold ratio, HGR for short, which shows the buying power of HUI relative to gold (HUI is the symbol of Amex gold bugs index, a basket of unhedged gold stocks). If the ratio is going up, the buying power of gold stocks is increasing relative to gold. It doesn’t necessarily mean that gold stocks are going up – the ratio will go up in two cases a) gold stocks are going up faster than gold b) gold stocks are going down slower than gold. Adam Hamilton and his subscribers have been using the HGR for a long time and here is an excellent primer on using that ratio as it applies to this very week. If you enjoy his writings, proceed to his essay archive.

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Dec 06

Gold Investors, Stay Calm – Here’s Why

Posted by Kristjan Velbri | Posted in Gold, Silver | Posted on 06-12-2009

A letter to those savvy investors that are still holding on to their gold and gold mining shares,

I hope you’re not feeling too bad about this sharp correction gold had on Friday. It’s nothing to be afraid of – this is nothing personal. The markets are not personal and sooner or later we’ve all got to deal with it. Gold is in a long term bull and short term corrections like these should not be taken too seriously. For some who are more courageous, this will signal a buying opportunity. For people who can’t sleep well knowing their portfolio is temporarily in the red because they bought where others sold, this is a time to sit on one’s hands and do nothing.

Do you remember the bull run and the eventual bubble in tech stocks? Or this bubble? At first, the bull was also climbing a wall of worry just like gold is right now. There was widespread disbelief but eventually people got around and after a few years it all went manic. Gold is not in a mania phase yet, but it may test the launching pad (ie. $1000) level. I’m not too worried about that. In fact, I like it because I wouldn’t want to see gold going too parabolic. Assets that go up too sharply tend to snap back very fast. If you take a look at previous bull runs that ended in a bubble (like gold will in a few years’ time, but we are far from that right now), then you will see that investors who get shaken out near the launching pad will miss the big moves. You need to ask yourself whether you are in gold and silver stocks for short term gains or for the whole marathon.

If a decline like we had on Friday makes you nervous then I have to warn you – this is just the beginning. When gold reaches new highs, the volatility is going to increase significantly. $100-150 moves will become the norm.  The result will be that small, antsy, caffeine-laden day-traders will be shaken out of their positions. They will fall like leaves off a tree on an autumn day. One of the things that I’ve learned during this financial crisis thanks to the help of many great authors and newsletters is that bankers run the show by buying on the dips. In effect, this is the transfer of stock positions from weak hands to strong hands. Don’t be the weak hand. This is not some” think positive” type of bullshit. I wouldn’t be telling you to be the strong hand if I didn’t know the fundamentals behind gold’s rise (and the dollar’s subsequent demise). Being the strong hand when it comes to the dollar is bullshit because the fundamentals are very bleak. Being the strong hand when it comes to gold is the only way to win this game. You’ve got to acknowledge that bankers still run the game and there is nothing you can do about it. The only way to play this is to ignore the short term dips until the fundamentals and the technicals signal a selling point.

This year another strong fundamental driver has been added to the mix – central bankers have become net buyers of gold and there is nothing Ben can do about it. The fact is that central bankers are printing away our purchasing power. This is not a phenomenon that is unique to the United States. Nobody wants their currency to strengthen in an environment like this so the central bankers just keep depreciating their respective currencies. The only way you can protect your wealth is by buying hard assets, the best of which are gold and silver, because they will not only protect your wealth but they will also gain in value since gold and silver are in a bull market. Have been for quite some time. And there’s no end in sight just yet. So hold on to your metals and keep accumulating.

I don’t know how gold will do next week. The dollar had been setting up for a rally for quite some time now. This might hamper gold’s rise. Or not. But it really doesn’t matter. If you are convinced about gold’s superiority to all the other asset classes then you really shouldn’t worry.

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Dec 02

It’s Not Just the Dollar, Gold at Record High in Euros as Well

Posted by Kristjan Velbri | Posted in Gold | Posted on 02-12-2009

The popular misconception is that the price of gold is higher only due to a falling dollar. The truth couldn’t be further from that. Gold reached record highs in euros, Australian dollars, Japanese yen and other major currencies in the first half of 2009. Over the recent months, gold has made new highs in dollar terms as well. At the same time, the dollar has been falling, but with decreasing speed. The price of gold has been rocketing higher in all fiat currencies over the last few weeks and now, gold has reached a new highs in euro terms as well. This simple chart should dismiss the words of the naysayers, the paperbugs who still favor banks and who are hellbent on seeing the price of gold collapse.

gold in euros

The truth of the matter is that gold is going up in all fiat currencies because gold is a safe haven play. In times like these people flock to safety. As the price of gold goes up, speculation increases too, but we are still a long way from a mania phase. Gold has not reached new highs if you figure in CPI, the faulty government statistical figure. To make up for inflation, gold should reach $2358. If you prefer the unofficial CPI published by shadowstats.com, then gold should reach $7150 to reach new highs. Any way you look at it, gold has still not reached a mania phase. The public is still selling the remains of their scrap gold. When gold reaches mania phase as tech stocks did at the turn of the century, people will be piling into gold, not selling it. Magazine covers should provide an early warning signal of a top, but this should be used in conjunction with other, more reliable indicators such as the Dow to gold ratio and short term interest rates.

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Nov 26

The Tungsten Gold Bar Fraud

Posted by Kristjan Velbri | Posted in Gold | Posted on 26-11-2009

This is from Jim Willie’s recent article:

The Canadian Mint has released information that admits to 17.5 thousand troy ounces of gold and other precious metals missing, whose estimated value is $15.3 million. No credible explanation has been offered for the missing inventory. These are not lamps, boxes of paper, crates of machine tools, floor tile, stereo sets, or power tools sitting in inventory. These are gold bars. Or were they tungsten bars? Permit the Jackass to surmise that the Canadian Mint were interrupted in their coin production process. They poured what they thought were gold bars into a cauldron, but since tungsten melts at 8000 degrees, and gold melts at 2200 degrees, the cauldron soup was lumpy with tungsten cheese. Instead of admitting they held and discovered 17.5 thousand ounces of tungsten, sure to rile the Wall Street boys, sure to turn the gold market upside down more than already, sure to invite severe scrutiny to many bankers who already face criticism (but not prosecution) over mortgage bond fraud, THEY JUST SAY IT IS MISSING !!!

Of course, Jim Willie is just speculating here. The Canadian Mint story has been dubious from the beginning and this is the best, or at least the most interesting explanation I’ve seen so far. The full article can be read here.

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